Is Financial Resiliency Your Most Important Trait?


I have long been a huge believer in utilizing information, skills and problem solving from one area of interest and applying them to a different area of interest. In past blog posts I've made this point with firefighting and my day job. In pursuing my interest in diet and exercise for successful aging I've learned a lot from Mark Baker (@guruanaerobic on Twitter). If you are not familiar with Mark, then some of his ideas will make you uncomfortable, not in a James Altucher sort of way, but if you take the time to try to understand what Mark is saying, you will ask yourself difficult questions and look at some things differently.

An excerpt from one of his books;

I think there is a direct parallel to how people sometimes manage their personal finances. Someone makes $50,000 when they're younger and maybe qualifies for a $1500 mortgage. Then a few years later they get a new job that pays them $100,000 (more abundant income) and they immediately upgrade to a house needing a $3000 mortgage. On a similar note, they view the final car payment as an opportunity to...go buy a brand NEW car!

Mark is a huge proponent of being self employed and owning your own schedule. The common thread to self employment and the above excerpt from Mark seems to be that not facing smaller scale challenges and uncertainty on at least an occasional basis (acute stressors) reduces our ability to overcome the very serious challenges that come a long every so often. Imagine the person in the above paragraph now 50, just got a new job paying him $150,000 so he immediately upgrades to a house that costs $4500 month for 30 years and continuing on the new car cycle. It will be much harder for him to overcome the challenge of an unexpected job loss at 52 or 53.

This is what going through my mind when I saw this Tweet today;

Here's the link to the story. Over the last five years, Deutsche Bank is down about 2/3rds in the face of what seems like a never ending wave of bad news regarding losses, malfeasance and so on. To the extent the sadness of staff was about non -financial aspects of the job (missing co-workers and the like), ok I can see that but if that sadness is actually financial fear along the lines of how will I pay the bills, well the runway for this has been years in the making. This not hindsight bias about the demise of the company but about simply realizing the odds of a serious problem were increasing and maybe it would make sense to warchest some money in case something bad happens.

I've told this exact story in relation to my exit from Charles Schwab. There were some things that occurred in early 2000 that seemed to me to increase the odds of a serious (even if just for me) problem. It never occurred to me the company would go under (obviously it mere struggled for a while and went on to great things based on stock market performance) but I felt the need to start warchesting which for me meant using only a fraction of my vacation hours and ceasing 401k contributions in case I needed the money unexpectedly. I got laid off in September of 2001 and between my severance package and warchesting we could have lasted a long time if needed. Fortunately it only took a couple of months to find a job.

The idea of getting laid off is probably one of several reasons why Mark would say to be self employed (he has far more interesting comments on fulfillment). A newly laid off DB trader who is financially desperate as a result of this news is exactly what Mark is talking about, where's the resiliency? Maybe Mark would disagree with me on this but the person who lived below his means, warchested or proactively took other action to minimize the damage caused by an expected job loss has of course made themselves more resilient.

To me, resiliency equals financial independence or at the very least is a huge component of financial independence which I equate to a form of wealth. Time is our most important asset and if that resonates with you then so does this sort of independence and not wanting to allocate time to a source of worry that could have been avoided or significantly reduced.

If you're 55 or 60 or some other age that is significant to you or your planning and today you found out you were now unemployed, could you make it work until Social Security kicks in (at a minimum) if like the news would tell us, people at that age have a hard time finding work? Only you know your answer but if the answer is no, then what can you do now so that if ever confronted by this situation you could make it work? Again, only you know the answer. And because it seems to fit here, paraphrasing Joe Moglia, no one will care more about your financial resiliency more than you.